Former Norwalk Official Called 'Front Man' in Fraud Scheme

NORWALK — Former City Administrator William H. Kraus was described by a federal prosecutor Tuesday as the "front man" in a sophisticated fraud ring that used Kraus' "good name" as part of a conspiracy to bilk a dozen investors out of more than $1.4 million.

Kraus was one of eight persons from California and Utah who were indicted last week by a federal grand jury in San Diego. In a 23-count indictment, the eight were charged with conspiracy to commit mail fraud, mail fraud and aiding and abetting mail fraud, with each count carrying a penalty of five years in prison and between $1,000 and $10,000 in fines.

The crimes allegedly took place between February, 1981, and August, 1983, while Kraus was city administrator and an instructor at Cal State Long Beach.

'Air of Legitimacy'

"They (the conspirators) used him (Kraus) as the man with the air of legitimacy," said Special Asst. U.S. Atty. John Heisner, also a San Diego deputy district attorney, who directed the 20-month investigation that led to the arrests.

In an interview, Heisner said that the fraud ring exploited Kraus' credentials and reputation, and described the then-Norwalk city administrator as in "on the ground level" when the conspiracy was planned.

Kraus, 46, who is free on $50,000 bail, said in an interview Tuesday that he had "great confidence in the legal system," and predicted the case against him "will be resolved most satisfactorily."

He declined comment on the charges against him, as did his lawyer, Anna Ho of Gardena.

Kraus, who became the city administrator in 1973, resigned ten years later on Aug. 20, 1983, after an investigation by a lawyer hired by the city found possible illegalities in Kraus' private business dealings. That report, which contained charges separate from the alleged crimes Kraus was indicted for in San Diego, was turned over to the Los Angeles district attorney 20 months ago, but that office did not file any charges against Kraus.

Initial Complaint

Last week's federal indictment in San Diego against Kraus and seven other persons grew out of an investigation that began two years ago when a San Diego investment counselor complained to the San Diego police that one of his clients had been bilked out of $200,000 in a phony investment, Heisner said.

At Cal State Long Beach, where Kraus has taught since 1974, June Cooper, the university's vice president of faculty and staff relations, said Kraus' current contract expires in May, and it is "unlikely" that the university would take any action against him unless he is convicted.

Kraus, who has a Ph.D. in public administration, is paid $42,336 a year to teach students in four graduate courses at the university's Center for Public Policy and Administration, including courses in public administration, management, budgeting and finance, Cooper said.

In Norwalk, where Kraus said he was considering a political comeback by possibly running for the City Council next year, the former city administrator still has loyal supporters as well as detractors.

"I'm not surprised that it (the indictment) happened, and I hope it causes some reflection among those who questioned why the City Council forced him out of office," said Councilman Lou Banas, who had pushed for Kraus' resignation.

'Justice Has Prevailed'

"Finally, justice has prevailed," said Walter Edsel (Ed) White, a civic activist who reviewed city phone bills and found the city administrator as far back as 1979 had accepted collect calls at City Hall from former business associates who were in prison. One of those who phoned him collect was Edward Elbert Wingender of Long Beach, who was also indicted last week as part of the eight-member fraud ring, said White. His inquiry led to an official city investigation of Kraus.

At the Norwalk Senior Citizen Center, where a photo of Kraus still hangs on the wall, an elderly woman who answered the phone Tuesday said she was speaking for many persons at the center when she said, "Dr. Kraus was very good to us senior citizens. He loved us and we loved him."

She declined to give her name.

Jesse M. Luera, an assistant to the city administrator who runs the city's Social Services Center, said that Kraus has "done a lot of good for the community in the past 10 years" and had hired many Latinos to work in city government.

Luera, also a Norwalk-La Mirada Unified School District trustee, said that Kraus told him three weeks ago he planned to attempt a political comeback next year and run for election to the City Council.

Kraus confirmed that he was considering such a move, saying he was disturbed by problems in city government that he blamed on Banas, whom Kraus claimed had a "divisive" effect on city officials. Kraus said that if he wins his case, he may still run against Banas.